It’s never too early for small business owners to start thinking about taxes. Small business tax season goes all year round — with quarterly estimated tax payments, payroll taxes, and other tax obligations specific to your state or industry. But unfortunately, small business owners can be uniquely vulnerable to tax scams and misunderstandings. And tax scammers are getting more sophisticated!
If you don’t know the difference between “phishing” and “smishing,” or if you’ve gotten bad tax advice from social media memes, read on for some of the biggest tax scams identified by the IRS. Small business owners need to think ahead as you prepare for next year’s tax returns. Keep bad information off your tax return and scammers out of your bank account!
Here are some of the biggest tax scams that small business owners should beware of in 2024 and 2025.
One of the biggest tax scams identified by the IRS is “taking tax advice from social media.” Some scammers — or well-intentioned but badly misguided people — share tax misinformation via social media posts and memes. The bad tax memes might include false information and bad advice about how small business owners (and individual taxpayers) can get special extra tax refunds or use special tax forms, or secret tax tricks that the IRS doesn’t want you to know.
You can’t believe everything you see on social media, no matter how cleverly designed the memes might be. If you file a fraudulent tax return based on misinformation, you can be left holding the bag — and be liable for tax penalties or even criminal prosecution.
2. Employee Retention Credit (ERC) tax scams
During the pandemic, some small businesses were allowed to receive a special tax credit called the Employee Retention Credit (ERC). This tax credit was intended only for qualifying businesses that kept paying employees during the COVID-19 shutdowns and resulting economic crisis.
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However, some tax scammers have been misusing the Employee Retention Credit, and encouraging other small businesses to apply for ERC money — even though their business doesn’t qualify for it. Some small businesses have filed incorrect claims for ERCs based on misinformation, trying to get ERC money that they aren’t eligible to receive. As a result, the IRS announced a moratorium on new Employee Retention Credit claims filed after Sept. 14, 2023.
3. False Fuel Tax Credit claims
The Fuel Tax Credit is another federal tax credit that is being misrepresented by scammers and misused by some small business taxpayers. Don’t get confused — unless you have a special kind of business, your company probably doesn’t qualify for the Fuel Tax Credit.
Small business owners can sometimes get tax deductions for business travel and depreciation on a business vehicle. But most small businesses do not qualify for the Fuel Tax Credit. This tax credit is intended only for off-highway business and farming purposes.
Whether it’s the Fuel Tax Credit or any other tax credit, If you file a business tax return where you claim a tax credit for your business that you don’t actually deserve, you can face tax penalties, IRS audits, and even prosecution for tax fraud.
4. Phishing and “smishing” for tax fraud
Have you ever gotten a suspicious email from someone claiming to be from the IRS and offering you early access to your tax refund? Those fraudulent emails are known as “phishing,” because they’re trying to lure you into giving up your bank account information and other personal data that criminals can use to rob you.
But wait, there’s a new scam buzzword: “smishing” is like phishing, but with SMS messages (texts). With smishing, the scammers pretend to be the IRS and try to get you to click a link in a fraudulent text message. Don’t do it!
Remember: The IRS and other state tax authorities will not contact you by email or text. If the IRS has a question or needs to notify you about a refund or a bill, it will contact you first via good old-fashioned U.S. mail.
5. Outdated tax credits for sick leave and family leave
During the 2020 and 2021 tax years, the IRS allowed some self-employed people to take a special tax credit for sick leave and family leave. Although most of the limited-time tax relief programs from the pandemic have ended, and this credit is no longer available, some small business owners were still trying to claim it on their 2023 tax returns.
Be careful not to file taxes based on outdated information about which tax credits you’re still eligible to take. The tax laws might have changed more recently, and “fuzzy memories” are not a valid defense against filing a false tax return.
Bottom line: How to avoid tax scams
Don’t go it alone on filing your small business taxes. The best tax software helps you stay up to date on which tax credits you can claim, what the latest rules are for the current tax year, and how much of a refund you can expect — no poorly spelled, weird-font-having social media memes required. And if your small business taxes are more complicated, you can hire professional tax help — sometimes from within your tax software platform.
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